Lorene Cowan, 44, thought she would own the house up until now. But in New York City, where Cowan lives and works, home prices are skyrocketing beyond reach.
“I want to buy a house, and that’s the next step,” said Cowan, a business and life coach. But “In New York, admission has become extremely difficult,” she said.
In fact, New York has won the highest annual rise in housing prices in all major cities in the latest Case Schiller 20 City Composite. According to Realtor.com, the median listing price of New York City homes is over $829,000, up 3.8% year-on-year.
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In recent years, rising prices across the country have made it difficult for first-time home buyers to enter the market, and many millennials, such as Cowan, have delayed traditional milestones.
Even the recent decline in mortgage rates has rarely changed its affordable price equation. Lawrence Yun, chief economist at the National Association of Realtors, said it contributes to high prices, saying it “prevents first-time home buyers from entering the market.”
The problem of affordable housing
In the US, the median age of first-time homeowners is 38, a record high, according to a 2024 report by the National Association of Realtors. In the 1980s, the typical first buyer was in his late 20s. According to NAR, first-time buyers are currently only 24% of the market, accounting for the lowest share on record.
Matt Vernon, director of consumer lending at Bank of America, says Millennials and Gen Z believe their homeownership dreams as an opportunity and achievement to build wealth. “It’s taking more time for them,” he said.
The higher the mortgage fees, the more helpful it helped first-time home buyers stay on the sidelines.
Mortgage rates have fallen to their lowest levels recently since October, but the average rate for fixed-rate mortgages over 30 years is just above 6.5%, according to Freddie Mac.
“American consumers have become very used to low-level environments that spanned over a decade,” Vernon said.
According to Bank of America’s latest HomeBuyer Insights survey, 60% of current homeowners and future buyers (3 years high) said they were not sure if this is the right time to buy.
“Unknown whether prices are falling or rising is increasing the uncertainty in the market,” Vernon said.
Residential lock-in effect
It’s important to know where you can lead the rate.
Federal Reserve Chairman Jerome Powell said at a July press conference that the Fed has yet to decide whether to cut benchmark interest rates at its September meeting.
But even if the central bank cuts interest rates, “it doesn’t guarantee that mortgage rates will fall and housing will become more affordable,” says Ashley Weeks, wealth strategist at TD Wealth.
“Mortgage rates are more directly linked to the 10-year Treasury Department, so regardless of where the Fed moves in September, the mortgage rate could be flat or even increase,” Weeks said.
Still, many future home buyers believe that lower rates will come, which will help alleviate the problem of affordability for homes.
Approximately 75% of future home buyers expect home prices and interest rates to fall, and are waiting to buy a new home until then.
Another recent Bankrate report found that about a third (32%) of Americans said they needed mortgage interest rates to fall below 6% to feel comfortable buying this year.
However, more than half of those voted (over 51%) said they would not buy this year at the mortgage rate, which jumped by a whopping 13% points from Bankrate’s 2024 survey.
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